When Can the Government Seize Back Taxes?

by Karen Rogers, Demand Media

The IRS takes its job of collecting back taxes very seriously.

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The Internal Revenue Service seizure, also known as a levy, of business or personal property for back taxes is the final step of the collection process. Although business owners are responsible for paying their taxes on time, sometimes things go wrong. You could have suffered a business slowdown and not have the money to pay your taxes. If the IRS does not receive your tax payment, it will start the collection process by sending you a letter. If you choose not respond, the IRS will escalate its collection efforts.

IRS Collections Procedure

The first step in the collection process is the Notice and Demand for Payment letter. Depending on your financial circumstances, you can set up an installment payment plan to pay off the back taxes or dispute the tax amount if you think it is incorrect. You can also file an Offer in Compromise in which the IRS will accept a partial tax payment and consider the tax bill paid in full. If you do not respond or refuse to pay your taxes, the IRS’s next step is to file a Notice of Federal Tax Lien. This gives the IRS a legal claim against your present and future property.

Notice of Levy

The Notice of Levy and the Notice of Your Right to a Hearing of the levy notice is the final step before the IRS seizes your property for back taxes. In most circumstances, the notices are mailed at least 30 days before your property is seized. During those 30 days, you have a final chance to request a hearing, discuss your case with an IRS manager, request an Offer in Compromise or set up an installment payment plan to stop the levy.

Property Seizure

If no resolution is reached at the end of the 30 days, the IRS will seize your business property, including accounts receivables and rental income. If you have personal liability for the business taxes -- if you operate as a sole proprietorship, for example -- the IRS can garnish your wages, retirement payments and Social Security benefits to pay the tax debt if necessary. The IRS can seize your bank accounts, investment accounts and brokerage accounts to satisfy your back taxes. If you own a business, your can be taken. Personal property such as cars, boats and houses are among the last assets to be seized. It is easier and more cost-effective for the IRS to seize liquid assets rather than market and auction off business equipment or a house.

Stopping the Seizure

The IRS will continue seizing your assets unless you take action to have the levy released. Two ways you can do this is by paying your taxes in full or proving that you have a financial hardship. You can appeal the levy even after your property has been seized. You start the appeal by filing Form 12151, Request for a Collection Due Process or Equivalent Process. The appeal process can be time-consuming and overwhelming, so you might want a hire a tax professional to handle the appeal for you.

About the Author

Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.

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